Investor demand to take a dive

By Staff Reporter

Posted on Monday, 03 August 2015

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New data indicates that the title of best-performing capital city has changed hands, amidst warnings that the APRA crackdown and increasingly tight rental yields are about to have a significant impact on investor demand in Australia’s two largest capitals.

Melbourne has overtaken Sydney as the best-performing capital city market for home value growth, according to an analysis of July sales figures conducted by CoreLogic RP Data.

The results for the CoreLogic RP Data Hedonic Home Value Index indicate that home values in Australia’s capital cities continued to increase through July, with the index growing 2.8 per cent over the month and 11.1 per cent year-on-year.

That growth was enough to push the aggregated national value of all dwellings beyond the $6 trillion mark, according to CoreLogic RP Data’s head of research, Tim Lawless.

Melbourne experienced value growth of 6.1 per cent over the three months ending 31 July, while Sydney values increased by 5.4 per cent.

Sydney was the best-performing capital city in previous months.

According to CoreLogic RP Data, the rental yields recorded for houses in Sydney and Melbourne represent record lows, with Sydney houses recording a yield of 3.2 per cent.

Units in Sydney recorded a gross rental yield of 4.2 per cent.

With a gross rental yield of 3.0 per cent recorded for Melbourne houses and 4.1 per cent for units, Australia’s second biggest city simultaneously took the crown for best value growth and lowest rental yield.

These lows are largely a result of the record price growth experienced in each city, according to Mr Lawless.

“When you consider that Sydney rents have increased by just 2.5 per cent over the past 12 months while values have climbed 18.4 per cent higher, it is easy to see how yields are getting squashed,” he said.

Although low rental yields would not appear to have deterred investors to date, Mr Lawless predicted that, combined with recent changes to investor lending, this may be set to change.

“With value growth once again accelerating across Sydney and Melbourne, the market evolution in mortgage lending policies will provide a timely test for housing demand, particularly from investors.

“The combined effect of tighter lending parameters with more focus on serviceability and low LVRs, potentially higher mortgage rates for investment loans as well as limitations on the pace of investment lending imposed by APRA on Australia’s banks should conspire to slow investor demand in the market.

“Add to this the growing concern about the Sydney and Melbourne housing markets being overheated and the record-low rental yields and the outlook being painted for investment is likely to be one of diminishing demand,” he said.

Darwin was the worst performing capital city according to the index, values having fallen by three per cent over the three-month period.

Darwin houses recorded the highest gross rental yield, at 5.7 per cent, with units sharing the title with Brisbane, at 5.5 per cent for each market.

Hobart remains the most affordable capital city in Australia, with a median dwelling price of $305,000.